Levy: 10 Years of Gloom Possible

Economic forecaster David Levy says he doesn’t expect a quick recovery by any means. He supports the stimulus spending approved by Congress but holds out little hope that it will make an immediate difference.

In fact, the doldrums in the U.S. economy could take up to 10 years to overcome.

“The process is going to take more than one recession,” Levy tells Barron’s in an interview.

“This is what causes depressions — when you have this kind of severe, long-term imbalance. It will take something more on the order of a decade,” says Levy, chairman of the Jerome Levy Forecasting Center in Mount Kisco, N.Y.

Levy doesn’t believe that growth will be impossible during that period. Business cycles will continue. But in the end we will come to recognize that a slowdown on a time scale similar to the Great Depression will have occurred.

In any case, growth will not return in 2009, Levy says. “The earliest would be in 2010,” he says.

The stimulus plan as passed is up against something much larger than spending alone can influence, Levy says. And he expects further spending by the government later in 2008.

More spending would be in reaction to unemployment, which is already at 8.1 percent. Levy thinks it will reach as high as 12 percent.

“We’ve been losing more than a half-million jobs a month,” he says. “If you look over the course of any past recession, the rate of job loss doesn’t moderate over the course of that recession. It intensifies.”

Levy is also pessimistic about housing, which many view as the source of the continuing economic spiral. He sees no bottom in sight for home values.

“It is still declining, and this issue of dealing with foreclosures is a real one,” Levy says. “If you don’t deal with that, we are going to see more foreclosures as more people lose their jobs.”

“There is so much downward momentum in home prices, and such an overhang in the market, that we are likely to see prices overshoot to the downside,” he warns.

Yale economist and housing guru Robert Shiller — who correctly predicted the U.S. housing collapse — said in late January that the housing downturn might last up to 10 years.

“We are still experiencing a record price decline,” Shilller told German financial daily Handelsblatt.

“It is quite possible that house prices fall more strongly than they did during the global economic crisis of 80 years ago. The real estate crisis could last 10 more years.”

Economic forecaster David Levy says he doesn’t expect a quick recovery by any means. He supports the stimulus spending approved by Congress but holds out little hope that it will make an immediate difference. In fact, the doldrums in the U.S. economy could take up to 10...